The Hobbit Contract, Part 4

The firstthreeparts of our ongoing series about the contract in The Hobbit movie have already taken us through a variety of contract law topics. At this point, unless there’s a strong call to go through the entirety of the contract, we are going to start skipping less interesting clauses in favor of ones that present new or more complex issues.

I. Signatures and Witnesses

At the beginning of the second ‘page’ of the contract we have this paragraph:

The principles [sic] agreeing to this contract, namely the Company [as represented by Thorin Oakenshield] and the Burglar, and known collectively henceforth as the Parties, shall signify their agreement to all clauses contained herein [the Conditions of Engagement] by signing or making their marks in the spaces provided for so doing, and affixing seals if applicable. The Witnesses to this Contract, being those others whose signatures, marks or seals are affixed hereto, affirm, state and declare their understanding and unbiased agreement to all that is contained herein.

This language is a little unusual. Contracts—at least modern ones—do not normally specify the signature process in such detail. But there’s nothing inherently wrong with it, either, apart from the misspelling of ‘principal.’

The signature clause states that the parties may “sign or make their mark.” This is correct. There is no legal requirement that a signature be the signer’s name, much less the signer’s name handwritten in cursive. Instead, “the signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.” Restatement (Second) of Contracts § 134. A mark or even an affixed seal could suffice.

Most legal documents do not require witnesses unless they require them by their own terms. One notable exception is a will. The exact requirements vary by jurisdiction, but most require that wills be witnessed, typically by disinterested parties. In this case a witness signature does not seem to be required in order for the contract to be valid, but it’s not a bad idea in case there is a dispute later. It is curious, however, that the witnesses (in reality the witness, since only Balin appears as witness) “affirm, state and declare their understanding and unbiased agreement” to the contract. It’s unclear what, if anything, the contract requires a witness to agree to. The role of a witness is usually not to understand and agree to the contract but rather to witness the signing by the parties: did the parties sign, were they the correct people, were they mentally competent, etc. So this paragraph is a little odd but probably harmless.

II. Written Contract Required?

Relatedly, one might ask if a written and signed contract was necessary at all. Some types of contracts must be in writing. The Statute of Frauds refers collectively to laws that list the kinds of contracts that must be in writing. Although the Statute of Frauds got its start in England in 1677, it has since been almost entirely repealed there while it has grown more influential in the US. But the most substantial repeal of the Statute of Frauds in England didn’t occur until 1954, well after The Hobbit was written, and so Tolkien may have contemplated some sort of Statute of Frauds existing in Middle Earth.

However, none of the traditional Statute of Frauds categories likely apply in this case. The closest category would be contracts that cannot be performed in one year, but the adventure was complete within the year 2941, not counting the return trip. Thus, the contract could be performed within a year. Note that it’s not contracts that might not be performed in a year but rather contracts that cannot be performed in a year. An example would be if the contract said something like “the Parties shall leave for the Lonely Mountain two years from the signing of this contract.”

III. Non-disclosure Agreements

Next we have a non-disclosure or confidentiality clause:

Confidentiality is of utmost importance and must be strictly maintained at all times. During the course of his employment with the Company, Burglar will hear, see, learn, apprehend, comprehend, and, in short, gain knowledge of particular facts, ideas, plans, strategies, theories, geography, cartography, iconography, means, tactics and/or policies, whether actual, tangible, conceptual, historical or fanciful. Burglar undertakes and agrees to maintain this knowledge in utmost secrecy and confidentiality, and to neither divulge nor make known said knowledge by any means, including but not limited to speech, writing, demonstration, re-enactment, mime, or storage and retrieval within means or apparatus currently known or unknown or as yet unthought of.

(It is a plain drafting error to refer to “the course of [the Burglar’s] employment with the company”, since a later clause specifies in no uncertain terms that “Burglar is in all respects an independent contractor, and not an employee … of the Company.”)

This confidentiality agreement is a little overbroad, since by its strict terms it requires Bilbo to keep confident anything he learns on the journey, not just things he learns in confidence. The fact that information is already publicly known is usually a defense to a breach of confidentiality, since the information wasn’t actually secret. Overbreadth probably isn’t fatal to the clause, however.

What’s really unusual about this part of the contract is that it doesn’t appear to include a clause acknowledging that monetary damages alone would be inadequate compensation in the event of a breach of confidentiality. The purpose of such a clause is to make it easier to obtain an injunction ordering the breaching party to stop disclosing the confidential information. Ordinarily breach of contract results in a payment of monetary damages, and getting an injunction usually requires showing, among other things, that those damages are insufficient to remedy the harm done.

What’s doubly weird about this is that the contract does have this clause later on:

Burglar acknowledges that monetary damages alone will be adequate compensation for a breach of this contract by the Company.

We’ll talk more about this clause in a later post, but it’s curious that the contract only contemplates injunctions defensively (i.e. protecting the Company from them) and not offensively (i.e. making it easier to enjoin Bilbo).

Thorin’s dead before Bilbo goes anywhere. (lat spoiler alert) Thorin himself made peace with Bilbo before he died, the other dwarves seemed happy with the final outcome, and, if they’re unhappy with Bilbo, they know right where to find him for the next 60 years or so.

I was thinking more of how Bilbo uses his confidential information that Thorin wants the Arkenstone to take that stone and that information to the Men outside during the stand off and say to them “Hey, use this information I know!”

Actually, Bilbo did not complete the contract within a year… he did not complete the task. Some of the treasure that was in the hoard at Erebor when Bilbo began pilfering, was not recovered, despite the fact that Bilbo knows exactly where it lies.

If memory serves Smaug crashed (along with the town) deep into the waters of the lake. Between that and the fear the people still feel fear towards it years later Bilbo would have been physically unable to retrieve it.

That brings up a different question, as these disbursements were made by Dain Ironfoot, who was not a member of the Company, but was the head of the dwarven army that arrived at Erebor between the Men and Elves on the one hand and the Goblin horde on the other. SOME of the Lake Men (the ones descended from Dale) had a claim on SOME of the hoard; the Elves were only there because they believed Erebor (and the hoard) were abandoned, whereas the Goblins were there because the dwarves were there, and the Eagles were there because the Goblins were there.
So… does the contract specify succession rights? What, if any, rights does anyone outside the Company have against the Company’s property? What effect does Thorin’s death have on the Company? (Is the Company a partnership? A Royal Charter? A sole proprietorship owned and run by Thorin?) I’d lean toward “partnership”, for a couple reasons… they are all to share in the profits (if any), and the default business entity you get when you don’t hit all the details right for something else is a general partnership.

I don’t know about England’s Statute of Frauds (when it had one, that is) but the UCC Statute of Frauds has one for dollar value. Surely Smaug’s hoard is over the limit?
There’s also the fact that Thorin has provided part performance of the contract, in providing for Bilbo’s transport, and Bilbo has partly performed, when he undertakes to journey to Erebor.
Finally, there’s an outside chance of one other statute of frauds trigger… if the contract makes any reference of dispossessing Smaug from Erebor and not just his hoard, then it references a transfer of interest in land. Granted, that one’s tenuous, at best…

Is Thorin paying Bilbo to take the goods away from Smaug, or to deliver them to Thorin? (Remember, not all of the hoard in question is lawfully Thorin’s. Some of it came from other sources. Thorin attempts to convert these goods he should have in bailment, refusing to return them to their lawful owners. Thus, if your determination that the contract is a service contract is based on the fact that Thorin already has title in the goods involved… you’ll need to address the way the contract should resolve the matter of the part of Smaug’s hoard that wasn’t rightfully Thorin’s. And even that far assumes that Thorin may assert property claims as sovereign over any items of dwarven treasure, regardless of who owned them before Smaug arrived… we don’t really know how the dwarven economy works.)

It’s a contract for services because it’s not a contract for the sale of goods. Bilbo does not own the treasure, so he is clearly not selling it to Thorin & Co. Whether Thorin & Co. own the treasure or not is irrelevant because they aren’t selling it to Bilbo. They are paying Bilbo a share of the profits, which this contract even indicates is to be preferably paid out in gold (i.e. ordinary money). It further notes that Bilbo gains no property rights in any of the treasure as such, only a share of the final profits.

The fact that the execution of the contract may ultimately involve personal property changing hands is immaterial. Consider, for example, hiring someone to be your agent at an auction. They are going and purchasing property on your behalf, but the contract is one for services, not for the sale of goods. There is a contract for the sale of goods: the one between you and the auction house, perhaps as agreed to on your behalf by the agent, but that’s a separate contract from the one with the agent.

I agree with your outcome but not the line of reasoning. Common law says that treasure trove belongs to the finder, which is Bilbo, unless the owner can be identified. So, considering the fact that there is apparently a significant amount of treasure in Smaug’s hoard which was not Thorin’s property, which is to be conveyed to Thorin upon recovery, I don’t know that a determination that there’s a transfer of goods from Bilbo to Thorin is out of line; although I suspect that instead what is happening in the contract is that Bilbo is conveying his legal claims on whatever is recovered, of whatever value they turn out to be, for a set share of the total, and legal claims aren’t goods.

You’re assuming that the Lonely Mountain treasure is a treasure trove. It isn’t. As I discussed in my post on the Goonies:

a treasure trove is the property of the finder and consists of “[m]oney or coin, gold, silver, plate, or bullion found hidden in the earth or other private place, the owner thereof being unknown.” Bergeron v. Aero Sales, Inc., 134 P.3d 964, 969 (Or. Ct. App. 2006) (quoting Jackson v. Steinberg, 186 Or. 129 (1948)). “The treasure must have been hidden or concealed so long as to indicate that its owner, in all probability, is dead or unknown.” Jackson v. Steinberg, 186 Or. at 140.

Those are Oregon cases, but those courts were simply going off of the common law definition. In this case the owner is not unknown. The owner may be disputed, but there is a known, closed set of possible owners. Likewise the treasure was not hidden or concealed, much less long enough ago that its owner is either dead or unknown. Smaug was guarding the treasure, but he was not hiding it.

The treasure trove definition is actually fairly narrow and is really only meant to apply to literally buried treasure of the type found from time to time in England, typically from the Viking or Roman eras.

Again, there are multiple treasures mixed up in Smaug’s hoard. Some is traceably the property of Thorin, and some is not. The portion of the treasure that is not Thorin’s (or subject to Thorin’s claim as agent of the surviving dwarves, collectively “the Dwarven treasure”) seems like a trove to me… The original owners are all long-dead, no method exists to establish clear ownership, and it was taken from its original place and hidden underground (by Smaug, who buried it, by collapsing all the tunnels he could find). It certainly fits the definition offered in both of the case citations you quote.

“In this case the owner is not unknown.”
Yes it is. The treasure was taken from Dale, and there are no survivors. There are descendants of the original owners, but there’s no way to tell who has a valid claim on what (except the one-of-a-kind Arkenstone, of course). When the army of Men arrives on Thorin’s doorstep, they don’t ask for the specific pieces of the treasure they know are theirs… they demand a 1/12th share of the total, to settle the claims of their ancestors and for damages to Lake-town and services rendered (aid in reaching Erebor and pest removal).
“The owner may be disputed, but there is a known, closed set of possible owners.”
This is always true. The population is large, but it isn’t infinite.

“The treasure trove definition is actually fairly narrow and is really only meant to apply to literally buried treasure of the type found from time to time in England, typically from the Viking or Roman eras.”

You mean trove only applies to treasure taken from the town by a foreign invader, who kills and razes buildings and then proceeds to carry off the treasure and bury it under the ground, perhaps commingling it with treasure taken from other people and places, and left there long enough for everyone to either forget about it or to assume that it’s lost forever… or perhaps all involved are dead?
Again, focus ONLY on the treasure taken from Dale. It’s a treasure trove. Bilbo has assigned his claims, if any, in the part of the hoard that is treasure trove (if any) to the Company, as part of the contract; this gives Thorin legal title to the entire hoard, less Bilbo’s contractual share. Clearly, this is Thorin’s understanding; he acts as though he has legal title to the whole hoard despite recognizing that some of the treasure did not originate in Erebor.

The treasure does not fit the definition or the history. The history is of bags or pots of coins and other things made of precious metal buried a few feet underground. These were usually not buried by foreign invaders that stole the treasure from others but rather by merchants or wealthy families looking for a safe place to store valuables. The hoards were typically buried for safekeeping and later retrieval. They were also typically buried in fields, not kept inside someone’s house (even if the house itself happened to be underground).

In this case we have treasure not buried but rather stored in an extensive, artificial series of halls and chambers. And Smaug did not destroy all of the tunnels he could find. The main gate was wide open, for example. That’s how he came and went from the mountain.

The cases do not support considering a small amount of property of unknown ownership mixed with a much larger amount of property of known ownership to be a treasure trove. It is much more appropriate to consider the commingled treasure to simply be stolen property (if you follow the theory that Smaug is legally capable of theft). Many of the elements of a treasure trove are lacking, and it simply doesn’t fit with historical examples.

he acts as though he has legal title to the whole hoard despite recognizing that some of the treasure did not originate in Erebor.

Actually Thorin expressly refuses to answer Bard’s claim that part of the treasure belongs to the men of Laketown as descendants of the men of Dale from whom some of the treasure was stolen. He does say, however, that “To the treasure of my people no man has a claim” (emphasis added), which suggests that he recognizes that some of the treasure does not belong to the dwarves.

“It is much more appropriate to consider the commingled treasure to simply be stolen property.”
Great, except that what does that mean? Stolen property, when found, is returned to the owner. But… we have no known owner. You can’t even escheat it to the government, because the city was razed and abandoned. Is Thorin supposed to maintain an evidence locker to hold it? What DOES happen to evidence seized as stolen property when the accused thief dies before trial, if no one can make a supported claim of ownership?

A lot of this reads like they just adapted the boilerplate from a movie contract. As a writer who’s done media tie-in novels, I’ve seen language like this in my contracts, particularly the part about being an independent contractor and not an employee. Also the language extending the covered media to encompass “means or apparatus currently known or unknown or as yet unthought of” is the kind of thing you see written into modern publishing/media contracts in order to safeguard against the development of new media — something that I assume is done to avoid the kind of problems that arose in the past when contracts for royalties, music licenses, and the like in older TV shows or movies failed to address media that didn’t exist yet like DVDs or online streaming, which is why so many old shows can’t be released in those formats. I find it implausible that such language would be included in a contract in Middle Earth, because that was not a society in which new media technologies were constantly being invented the way they are in our era. I doubt any contract writer in that world would’ve considered it necessary to guard against the possibility of new forms of information storage being invented.

If the writers of this document were basing it on film-contract boilerplate, that might also explain the incongruous nondisclosure clause. That’s the sort of thing that would be standard in the contracts of people working on a megabudget blockbuster motion picture. Studios these days are really strict about secrecy.

I agree that a lot of the boilerplate looks lifted from a film contract. There are some other examples that we’ll get to in later posts. It’s kind of unfortunate, but they had a lot of room to fill, so I can see why they padded it out.

Alternatively, maybe the prop maker was having a bit of a dig at the movie studios by including that language in such a one-sided contract.

“but it’s curious that the contract only contemplates injunctions defensively … and not offensively”

Is it really that strange for a party to want to protect themselves, while limiting their own liability? It’s been pretty common in my experience (as a renter, employee, and contractor) for the party drafting the contract to at least attempt something like this.
(and Christopher above apparently has knowledge of similar things in the entertainment industry)

I should have been more clear. For the most part, Bilbo is the one learning confidential information from the Dwarves, not the other way around. Or at least that’s certainly what the parties expected at the beginning. So I would have expected a clause saying (effectively) that if Bilbo breaches confidentiality, then the Dwarves could get an injunction against him. As it is the contract merely says (effectively) that if the Dwarves breach the contract then Bilbo can’t get an injunction against them. So the contract deals with injunctions defensively but not also offensively, from the Dwarves’ point of view. This is unusual for a contract with a confidentiality clause.

I believe “Company” in the sense of this contract refers to the the group of dwarves collectively not as a corporation or business. In this case, as a subcontractor Bilbo was hired by the Company and is in their employ as a Burglar.

As a group of people working together for a profit, Thorin & Co. would be considered a partnership unless they had some other arrangement such as a corporation or limited liability company. That partnership hired Bilbo as an independent contractor (not a subcontractor, since Thorin & Co. are not contractors themselves). He isn’t in their employ, however, as that suggests an employer/employee relationship, which the contract expressly prohibits.

Regardless of what the contract says, if Bilbo acts as an employee, he’s an employee. I don’t think that’s the danger, though. I think it’s possible to find that Bilbo is a partner (he shares in the risks, and shares in the profit (if any), which are hallmarks of partners, not employees.)

Whoops. That’s worded misleadingly. I don’t mean that Bilbo can act like an employee and become one unilaterally… I mean that if, in toto, the duties and responsibilities assigned to Bilbo in the contract are those of an employee, then he is an employee, even if the contract says that he is not. You can’t change the legal nature of a contract of a contract that way. I couldn’t dodge the UCC, for example, by inserting into a contract for the sale of bricks a phrase that says “this contract is for the provision of services and is not a sale of goods.”

You’re correct that merely calling someone an independent contractor does not make them one, but Bilbo has many of the marks of an independent contractor. He’s responsible for bringing his own tools, and although the dwarves have given him certain tasks to complete, he is largely free to decide how best to go about it. It’s a self-contained contractual obligation, not an open-ended, ongoing assignment. Payment is a single lump-sum on completion of the project, not a periodic paycheck, etc.

Although profit-sharing is normally prima facie evidence of the existence of a partnership, this is not the case if (among other exceptions), the profits are received as wages or as compensation to an independent contractor. Courts will look to the intent of the parties, and if there is a contract then the courts will generally defer to that. In this case the contract not only states that Bilbo is not an employee but that he is also not a “partner, joint venturer or subsidiary”. Since Bilbo can reasonably be called an independent contractor, that provision of the contract is not a sham and would likely be respected.

That said, the contract states that Bilbo and the Company are liable, on a pro-rata basis, for any damages brought against the Company. So while not quite loss-sharing, Bilbo is taking on some liability by signing on with the Company.

Have we determined (I don’t recall seeing a jurisdiction clause in earlier discussion and I haven’t seen the movie) where and before what arbiter the contracts is even to be enforced? Just curious.

And a trivial note on the Statute of Frauds one-year completion requirement (all the attorneys reading this already know this) which often confuses laypersons. Under the common law, the rule only applied when whatever the service was had to take more than a year. For instance, a contract to shovel my driveway every time it snows for the next ten years would be a SOF contract because ten years is more than one year. It is literally impossible for the service to be completed in a year or less.

But if the time is indeterminate, even if a reasonable person would believe that the service would take more than one year to complete (the example my contracts professor used was “Build a full-scale replica of the Great Pyramid using only your own hands and a spoon”) the one-year requirement has not been met. It’s *theoretically* possible to do it in less than a year, so you can’t get out that way.

Here, the adventure took less than a year, but that doesn’t matter. Even if the Lonely Mountain had been twice as far away and the route ten times as perilous, such that no reasonable person would have believed that the service could possibly have been performed in a year – that Bilbo could even have reached the Lonely Mountain in less than a year – a SOF defense based on the more-than-a-year rule would not prevail had there been no written contract.

There is an arbitration clause and something sort of like a choice of law clause, as I’ll discuss in a future post.

Re: statute of frauds. I tried to get at that distinction (“Note that it’s not contracts that might not be performed in a year but rather contracts that cannot be performed in a year.”), but thank you for elaborating on the point.

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